Secretary, Department of Family & Community Services v Geeves

REASONS FOR JUDGMENT 1 The Secretary of the Department of Family and Community Services appeals from a decision of the Administrative Appeals Tribunal which in substance decided that the respondent Ms Roslyn Geeves was entitled to receive carer payment under Pt 2.5 of the Social Security Act 1991 (Cth) ("the Act"). Ms Geeves had for some years been caring for Mr Craig Andrew Escott. The point of law raised on the appeal is whether the Tribunal was wrong in holding that a court-ordered trust fund should not be treated as assets of Mr Escott for the purposes of working out carer payment entitlement. 2 Mr Escott, now aged 43, sustained permanent brain injury in an accident. Ms Geeves began receiving carer payments in respect of his care in 1995. Mr Escott brought an action in the Supreme Court of Queensland. On 5 August 1998 Moynihan J in that Court sanctioned a compromise in the sum of $900,000 plus costs. The order of Moynihan J directed that the amount of the settlement, after payment to any entity having any statutory or other charge in respect of the fund, be paid to the Public Trustee of Tasmania who was to hold all sums paid to it by the defendants upon trust for Mr Escott. The terms of the trust were ordered to be those set out in O 21 r 11 (3) and (4) of the Rules of the Supreme Court of Tasmania. Those rules provide in effect that such money shall, subject to the directions of the Supreme Court, be held in trust and applied by the Public Trustee in such manner as he may think fit for the maintenance and education or otherwise for the benefit of the person under disability. The Public Trustee may at any time request the Court or a judge to give directions as to the trust, its administration or, the varying of any directions. 3 On 24 January 2002 the applicant cancelled the respondent's carer payments on the ground that Mr Escott's assets exceeded the disqualifying assets level. As at the date of the cancellation of the payments, the assets of the trust amounted to $774,174. 4 Section 198D(1) of the Act has the effect, relevantly for present purposes, that the care receiver's assets must be less than $376,750. 5 Section 198E supplies the test for "working out" the value of assets. It relevantly provides: "For the purposes of sub-s 198D(1) … the value of assets is to be worked out in accordance with: (a) Part 3.12, except Divisions 2, 3 and 4 of that Part; (b) Sections 198F to 198MA (inclusive) and (c) Part 3.18, except division 9." 6 The requirement in (c) was added by the Social Security and Veterans Entitlements Legislation Amendment (Private Trusts and Private Companies - Integrity of Means Testing Act 2000 (Cth) ("the 2000 amendment")). None of the provisions referred to in pars (a) and (b) of s 198E are relevant in the present case. However Pt 3.18, referred to in s 198E(c), is relevant. 7 Part 3.18 is headed "Means Test Treatment of Private Companies and Private Trusts". In the explanatory memorandum for the 2000 amendment it was stated: "This measure aims to ensure that customers [sic - presumably recipients of social security payments] who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or caucus of the company or trust." 8 Under the heading "Summary of Proposed Changes" it was stated: "Under this measure, a person who holds assets and/or income in a private company or private trust may have the assets and/or income of that company or trust attributed to them for the purposes of the means test under the Social Security Act." 9 Under the heading "Background" it was stated: "A key principle of our social security system is that people with similar levels of private resources should receive similar pension or allowance payments. However, the existing means test treatment of private trusts and private companies is inconsistent with the principles underlying effective targeting of social security payments. Under current social security law, assets and income are only attributed to a person where legal ownership or a fixed right to income is established. This means that private trusts and private companies may be used to hold and control assets and/or income outside the scope of the means test. The keyissue for means testing purposes is: to whom the assets and/or income of a structure should be attributed? At present, assets held by individuals, sole traders or partnerships are taken into account. Similarly, investments in public companies and public unit trusts currently are assessed as financial assets of the customer. It is with structures legally separate from, although controlled by, the customer, where the current means test does not consistently attribute assets and/or income to reflect a customer's real circumstances." 10 The explanatory memorandum goes on to give a hypothetical example. A husband and wife own assets substantially in excess of allowable limits for the purposes of the Act. The husband has a degenerative disease. On legal advice, the wife transfers her assets to the husband who sets up a discretionary testamentary trust that becomes effective on his death. The wife is the trustee and she and their children are beneficiaries. The husband's assets, including those acquired from the wife, are placed in the trust. 11 The memorandum states that "the current means test rules" mean that when the husband dies the assets of the trust could not be regarded as the wife's as she is only one of several beneficiaries. Thus she would be eligible for age pension at maximum rates. In reality, however, the wife would be able to direct income of the trust to any of the beneficiaries, including herself, and could use the trust's assets. But as a result of the 2000 amendment, the wife's entitlement to a social security payments will be nil. The 2000 amendment will employ tests to "look through" interposed structures to identify who controls a particular structure and who is the source of the structure's assets. 12 The memorandum notes that to ensure that people are not treated unfairly or affected unintentionally there are provisions in the attribution process for assets and/or income to be disregarded if inappropriate. 13 Turning to the text of Pt 3.18, s 1207 gives a "simplified outline". It relevantly states that, in the case of a trust, for an asset or income to be attributed to an individual